WHAT SHOULD GOVERNMENT DO FOR THE POOR? Many liberals and conservatives are seeking common ground to help the poor without pumping up the deficit. Both like programs that promote work.
Both want the government to stop taxing the poor. They part company over whether to increase welfare benefits.

By Sylvia Nasar RESEARCH ASSOCIATE Darienne L. Dennis

May 26, 1986

(FORTUNE Magazine) – TWENTY-TWO years after the opening shot in the War on Poverty, most Americans have given up hope of victory. According to a recent opinion poll, the
overwhelming majority of Americans believe that past efforts to reduce poverty have not worked, and that little has been learned about what does. But if the heady optimism of the
1960s looks overblown, so does the cynicism of the 1980s. Properly measured, the U.S. poverty rate fell by more than half between 1940 and 1964 and has been halved again since 1964
(see preceding story). Yet the dilemma of poverty is nagging Americans, currently enjoying the fourth year of an economic expansion. Antipoverty programs have not done much to lower
poverty rates among children. Nor have they encouraged work or family stability. On the other hand, antipoverty programs have not lately swollen the federal deficit: they have grown
in line with tax revenues since 1979. But with the federal deficit topping $200 billion, and much uncertainty over what works, no major new antipoverty programs seem likely. No more
likely is a big shift in responsibility for the poor between the federal government and the states. So, many liberals and conservatives have been seeking common ground to better help
the poor without pumping up the federal deficit or undermining incentives for self-sufficiency. While debate goes on, the best defense against poverty, most agree, is policy that
leads to steady economic growth and lower unemployment. Apart from that, government can change welfare practices, devise more effective systems of enforcing child-support payments,
eliminate the growing tax burden on the working poor, and encourage poor teenagers to stay in school. Of these proposals, the most contentious by far are welfare changes that would
boost the cost of welfare, officially known as Aid to Families with Dependent Children (AFDC). The change many recommend would include programs for helping welfare recipients find
jobs. Even so, the welfare measures could add $2 billion to $3 billion to the $80 billion a year the federal government now spends on the poor, making enactment a long shot. A 1985
report prepared for the American Enterprise Institute, a conservative policy research organization, argues that the poor need more help and should receive it. Jack A. Meyer, a
coauthor of the report, says that it is time to shift dollars away from politically sacrosanct Social Security and defense programs, which together account for $500 billion of the
$974-billion fiscal 1986 U.S. budget. One way he proposes to raise revenue for poverty programs is to tax Social Security benefits at a higher rate. While the number of poor children
has risen since 1979, government assistance to them has declined in real terms. AFDC, which is administered jointly by the federal government and the states, is the major program that
provides cash aid to children in families; most of the families are headed by single women with little or no income of their own. Two major criticisms are leveled at AFDC: benefit
levels in some states provide only a precarious existence, and the program does not encourage poor mothers to work. The Committee on Federalism and National Purpose, a bi-partisan
group of 25 government, academic, and business leaders, says reform should tackle both problems. Median AFDC benefits have declined 33% in real terms since 1972 because almost no
states increased welfare outlays enough to keep pace with inflation. AFDC benefits vary from state to state, even though differences between states in average per capita incomes and
cost of living have narrowed. Monthly AFDC benefits for a family of three are $118 in Alabama, vs. $389 in Maine, even though per capita incomes in the two states are about the same.
Lawrence H. Summers, a Harvard economist, Sheldon Danziger, director of the Institute for Research on Poverty at the University of Wisconsin, and Senator Daniel P. Moynihan (D-New
York) say that the government should set a national minimum AFDC standard and require that benefits be indexed to inflation. That would make AFDC work like Supplemental Social
Security and food stamps. Senator Daniel J. Evans (R-Washington), co-chairman of the Committee on Federalism and National Purpose, would set the national minimum between $518 and $619
a month for a family of three, 75% to 90% of the poverty line. But the costs would be politically prohibitive. More realistic would be a minimum of $443, which with food stamps would
equal 60% of the poverty line. States could set benefit levels above the national minimum. Meyer of the American Enterprise Institute says the federal government should also require
that states grant benefits to all impoverished families with children; 24 states refuse AFDC benefits to households in which an adult male lives. If benefits were extended to
two-parent families and a national minimum of $443 a month were adopted, total AFDC expenditures, now $15 billion, would rise by an estimated $2 billion to $3 billion. The Reagan
Administration has opposed national standards, arguing that states can better determine the needs of poor families and control costs. Women with children who stay on welfare rolls for
ten years, while only 20% of those who ever receive welfare, account for a disproportionate share of AFDC benefits. A way to minimize costly long-term dependence is to require those
receiving benefits to work, look for jobs, or get job training. Almost 60% of mothers work at least part time; it seems reasonable to expect the same from most mothers on welfare.
Lawrence M. Mead, professor of political science at New York University and author of Beyond Entitlement: The Social Obligations of Citizenship, argues that ''restoring the link
between income and work helps to resolve the conflict between adequate benefit standards and the negative consequences of aid.'' President Reagan is a champion of workfare, in which
participants work for their welfare benefits. Others advocate programs that stress job training. The 1981 Omnibus Budget Reconciliation Act gave states the option to conduct
large-scale experiments. Because of this law 39 states have adopted a variety of new welfare work programs. PARTICIPANTS in training programs are generally enthusiastic. ''I'm getting
experience,'' says Delores Pitts, a 30-year-old mother of two, who is a trainee in a city government office in Baltimore. ''You can get the same amount staying home, but you can't go
any further.'' And employers seem pleased. Edie Froix, who supervises state-sponsored job trainees in the medical records department at a Baltimore hospital, says, ''Many are as good
as some of my permanent employees.'' She has hired three. The Manpower Demonstration Research Corporation, an independent organization that evaluates government programs, is studying
11 state work programs by comparing participants to other welfare recipients with similar backgrounds. Says Judith M. Gueron, who heads the evaluation team, ''Work programs take
up-front money to run, but now we have evidence that there's a payoff.'' In Maryland, for example, 37% of the participants were employed one year after the program started, vs. 32% of
those in the control group. Participants' annual earnings of about $1,935 were roughly 10% more than those of non-participants. Gueron found that in almost all the state programs the
gains were greatest for the hardest-to-employ -- those with little or no work experience -- even though their absolute employment and earnings levels were far lower than for those
with strong work histories. Work programs do not guarantee jobs to the participants. Of the 10,000 welfare recipients in West Virginia who took workfare jobs last year, only 13% ended
up with permanent employment. That is perhaps not surprising, given West Virginia's unemployment rate of 11.7%. Gueron's research suggests that different approaches to work programs
can be cost effective. Inexpensive programs, such as helping with job searches, speed the movement of welfare from the rolls. Expensive programs -- such as subsidizing jobs -- could
be used for those who fail to find jobs. Anything short of full-time work will not move female-headed families out of poverty. But, says David T. Ellwood, a Harvard economist, ''If
just over 25% of all wives with young children are fully employed, can we realistically expect most female household heads to be fully employed?'' These women's need for AFDC could be
reduced by strengthening the system for enforcing child support. Some 20% of separated or divorced fathers who are poor contribute to the support of their children; 7% of
never-married fathers do. Poverty rates among female-headed households are far lower in countries such as Germany and Norway that have tough federal child-support systems. In those
countries, if the absent parent's payments do fall in arrears, single parents still get their child support from the government. | Wisconsin is experimenting with a system that could
reduce poverty as well as dependence on AFDC. Under the plan, the state designates a fraction of the separated father's earnings to support a child under 18 living with the mother.
(If the father has custody of the child, the mother's earnings could be taxed.) Payments are withheld by employers, and the courts distribute the money to the mother as child support.
As of next year, Wisconsin will continue to make minimal payments if the father falls in arrears. If the father's payments dip below the minimum, the state will also make up the
difference. Further, women receiving child support who work will receive a $1-an-hour bonus payment. That would give a single mother with a half-time minimum-wage job more income than
she would get from AFDC. ''The program guarantees support and it's pro-work,'' says Irwin Garfinckel, professor of social work at Wisconsin's Institute for Research on Poverty, who
designed the program. ''This is the way to go.'' Policy analysts from the conservative Heritage Foundation to the liberal Citizens for Tax Justice agree that poor working couples with
children may be best helped outside welfare programs -- through the tax system. Because inflation has eroded the personal exemption and Social Security contributions have risen
steeply, more people at lower income levels are subject to federal tax than in 1979. In 1983, 64% of poor households paid at least one form of income, property, or payroll tax. Taxes
took 7% of their total income. THE TAX REFORM BILL, in both House and Senate versions, calls for raising the personal exemption, currently $1,080, and the amount of pretax income not
subject to tax -- the so-called zero-bracket amount -- now $2,480 for heads of households. The aim is to stop poor families from having to pay federal income tax. Also under
consideration is an expansion of the earned income tax credit, a provision in the tax code that enables poor working families to recoup some Social Security contributions. Indexing
the earned income tax credit for inflation, and adjusting it according to family size, would not only provide additional relief from the rapidly rising Social Security tax, but also
operate as a modified negative income tax. S. Anna Kondratas, an economist at the Heritage Foundation, observes that such a tax program will encourage low-income workers to work. If
applied only to those below the poverty line, these tax changes would reduce federal revenues $6 billion to $8 billion, estimates Robert S. McIntyre, of Citizens for Tax Justice.
Channeling more income to the neediest is, at best, an interim solution to the problem of poverty. Investments that increase the skills of poor children offer the most long-run
promise. A recent Rand Corporation study on the dramatic decline in poverty among black men in the last four decades shows that better education is as important as economic growth in
reducing poverty. James P. Smith and Finis R. Welch, who conducted the study, attribute half the decline to a combination of additional years of school and the improved quality of
black schools. Most education experts agree that the federal Head Start preschool program and compensatory education in elementary schools, so-called Chapter One programs, produced
measurable, if modest, improvements in school performance. Head Start children, for example, are more likely to be promoted and less likely to require remedial classes than their
peers. Christopher Jencks, professor of sociology at Northwestern University, would like to see all poor children enrolled in Head Start. About one-third are enrolled now. And Nathan
Glazer, professor of education at Harvard University, argues that scarce government resources for education should be concentrated on elementary schools that serve poor children.
About 40% of poor girls who drop out of high school do so because they have babies. These young mothers and their children are the most likely to stay dependent on welfare for ten
years or more. Project Redirection, a model program that was partially funded by the federal government, offers counseling and other services for school-age girls who are on welfare
and are either pregnant or are already mothers. So far the project, which now operates in nine cities, has been modestly successful in getting girls to finish high school and in
reducing the number who have second babies. Another, less expensive approach is to step up efforts to teach teenagers the negative consequences of early parenthood. Says Blanche
Bernstein, former Commissioner of Human Resources in New York City: ''Waiting until the children are born is very late, very late indeed.'' FEW OTHER programs to prevent poor youth
from dropping out of high school have had much success. However, a model program called 70001 Training and Employment Institute is making some progress in helping dropouts find jobs.
Organized in 63 cities, and working with funds from the federal Job Training * and Partnership Act, the program accepts only dropouts who agree to meet tough requirements for
attendance and good behavior. It is called 70001 after an early accounting number assigned to the project. After providing some basic job training -- and imparting such insights as
how to apply for a job and how to meet employers' expectations -- the program places young workers in fast food and retailing jobs. The program also encourages participants to pursue
high school equivalency diplomas. Last year, 84% of the 4,148 enrolled completed the 70001 programs; 92% got jobs. The much-criticized Job Corps provides remedial education and job
training for young, hard-core unemployed. It is expensive -- it costs the government $15,000 a year for each participant -- and has a high dropout rate. However, a thorough evaluation
of the Job Corps by Mathematica Policy Research, a Princeton, New Jersey, research organization, found in 1977 that taxpayers get about 45 cents back for every dollar spent on the Job
Corps. That includes earnings from Job Corps members and the decrease in crime. Reforming welfare, shifting fiscal priorities, and devising a better child-support system offer real
hope of alleviating poverty among children and encouraging work and self-sufficiency. But the political willingness to bear the costs of reducing poverty will increase only if and
when the current expansion picks up speed.